Tesla Motors' Year of Anticipation

As the year comes to a close, it's helpful to look back at what happened to the stocks you follow. With a highly visible company like Tesla Motors (Nasdaq: TSLA) , whose prominent CEO is frequently quoted in the media, it's easy to get caught up in a short-term view of events – but the longer-term perspective is what really matters when judging an investment.

For Tesla, 2011 was a year of incremental gains and hard work -- gains in credibility and revenue, thanks to deals with some heavy hitters, and hard work to lay the groundwork for the launch of its first mass-market car, the Model S, due in mid-2012. And while the company (and the stock) had some big ups and downs during the year, the share price looks set to end the year incrementally ahead of where it started -- just, I'd argue, as the company will.

Tesla Motors' key statisticsA look at a few key numbers shows that while the company has produced nice revenue growth, profits are still a way off.

Year-to-Date Stock Return

4.3%

Market Cap

$2.92B

Revenue, Trailing 12 Months

$201.15M

Quarterly Revenue Growth (Year Over Year)

84.60%

Earnings (EBITDA), Trailing 12 Months

($207.2M) (loss)

Quarterly Earnings Growth (Year Over Year)

N/A

CAPS Rating (out of 5)

*

Sources: Yahoo! Finance, Motley Fool CAPS. YTD return from market open on Jan. 3 through market close on Dec. 16.

The stock has returned 4.3% so far in 201. Although a return of just over 4% might not seem that impressive, it did beat the market -- the Dow Jones Industrial Average (INDEX: ^DJI) is up just 1.6% over that same period. It also trounced the stocks of most automakers, including those that enjoyed relative success in 2011: Ford (NYSE: F) , General Motors (NYSE: GM) , Toyota (NYSE: TM) , and Honda (NYSE: HMC) have all fallen to significantly lower levels since the beginning of the year.

Small steps forward add up to a big leapFrom a business perspective, Tesla has made some incremental gains that add up to a solid step forward in 2011. While the company had technology-sharing deals in place with Panasonic (NYSE: PC) , Toyota, and Mercedes maker Daimler (OTC: DDAIF.PK) in 2010, significant expansions of its arrangements with both Toyota and Daimler in 2011 added credibility to its perceived technological advantage. They also added promising new streams of revenue for the company in coming years.

That's important for a couple of reasons. First, making cars is a low-margin business: Even the global giants like Toyota and GM, with their massive economies of scale, manage margins only in the 5%-8% range -- and that's when everything is going right. As the technological playing field levels out (and it will), Tesla could find itself competing with the big automakers on price -- but without their scale.

Second, even if Tesla's upcoming cars are complete successes, the market for electric cars may be sharply limited. Recent trends suggest that hybrids will dominate in coming years, and purely electric vehicles may be marginal products for some time. Tesla's ability to generate revenue by supplying powertrains and technology to other automakers could end up being a key lifeline for the company if its vehicles don't take the market by storm -- for whatever reason.

It's a risky plan, but it's being executed wellMeanwhile, development of Tesla's first mass-market model (and the first car built entirely by the company), the Model S sedan, is said to be on schedule. Tesla's efforts to lay the groundwork for the car's anticipated mid-2012 launch appear to have been quite successful to date. The already-loud buzz in car-geek circles has grown considerably in recent months, and CEO Elon Musk said in late October that the company already had 6,500 orders for the car, a number that exceeds Tesla's planned first-year production.

Those orders require a $5,000 "reservation payment," so there's some substance to that number -- it's a lot more than a mailing list. The payment is refundable, but it's high enough that those numbers have to be taken seriously. If the car's launch is a success -- and I know Tesla's supporters hate it when I say this, but there are very good reasons to be skeptical, or at least cautious -- most of those sales will happen. Musk's prediction of profit in 2013 may not be far-fetched.

But it's what happens after the initial rush of Model S sales that will be critical to Tesla's long-term success (or failure). Will the company's products find a home in the wider mass market? Or will sales drop off once the initial rush of early adopters and gadget geeks get their new rides? It'll be at least another year before we know for sure, but so far, the company appears to be on track.

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model x unveil before the end of the year, model s starts to roll out mid year 2012... which i expect and hope to be a successful launch of course there will be problems hopefully very minor an the model s and model x pave the way for the mass sub 30,000 electric car that we all hope and want.

I'm hearing that the public unveil of the Model X will be at (or shortly before) NAIAS in January, but they might drop some photos before then. But either way, it'll be best to think of it as an early beta version... the real thing is probably at least two years away, even if all goes well for Tesla between now and then.

I think it's a bold and much needed move. If the government doesn't step in and try to squash this innovation it could mean a beginning to the end of fossil fuel dependency in the near future. We so much need to be independent of OPEC oil and since the current administration is bent on stopping drilling as much as possible, there is no hope for us producing enough on our own to keep up with the demand.

Had they not screwed Tesla back in the day we wouldn't have the problems we're having now with oil supply that is helping destroy our economy.

Look for options on the model s to be published this week. Model X unveiling is set for Feb. 9. Reservations are currently around 8,200, with 0 marketing in the worst economy in 100 years and you are still questioning demand LOL.

I'm questioning demand beyond early adopters, yes. ("0 marketing"? I don't think so. I see lots of marketing going on, and it's being done well.) And I will keep questioning demand until those numbers get considerably larger. 8200 may sound like a world-changing number, but a little perspective shows that it's not... Ford sells twice that many Fusion sedans (and five or six times that many F-series pickups) every month.

They're executing well so far, but the jury is very much still out, and it'll be out for awhile yet.

At a certain point you need to have the conviction to look at a product and make a decision for yourself. Go sit in a model S, maybe take one for a test drive (available in Feb.), understand all the advantages and disadvantages, and ask yourself "are people going to buy this?". If you wait for the "jury" you will wait yourself right out of profit.

I've had my Tesla Roadster 2.5 for 6 months, driven over 6,000 electric miles and haven't been to a gas station in 202 days. Driving a Tesla is the most exciting and rewarding experience I've ever had in an automobile. There is virtually no maintenance other than replacing tires, brakes (you barely use them with the cars regen braking) topping off brake and washer fluid and battery coolant. Tesla service technicians come to my home for the annual checkup.

More importantly, the Tesla community (corporate and enthusiasts) is unlike anything you could get with another manufacture. You are treated like family and their only client.

I've had the pleasure of seeing the Model S in person and it's gorgeous. I'm close to reserving a Signature series for 2012 delivery, then a Model X for 2013-2014. I don't think I'll buy another car powered by an ICE.

Tesla Motors proves the Silicon Valley approach to running a business is the only way to go.

@185kw: I'm glad to hear that you love your Roadster -- they're wonderful cars. And Tesla's care for Roadster buyers is definitely first-class. But understand that the service level and attention given to buyers of $100k+ cars -- by anyone, not just Tesla -- is on a whole different planet from what buyers of $30k cars get. I wonder how Tesla's approach to customer service will evolve as the number of buyers goes up and prices (and margins) come down. It would be a huge advantage to offer this kind of treatment to people looking at $35k vehicles and cross-shopping with, say, the local Ford dealer, but... I wonder how much of it will scale.

Also, re your last sentence, I think we need to wait to talk about what Tesla has "proven" until we see a few profitable quarters. So far so good, mostly, but they're not home yet -- far from it. 2012 will be critical.

@185kw Wow thanks for that very encouraging news, thats great to hear. I am a graduate student and i can't wait for the day that I am able to make my own reservation for a model X. Im planning on it being my next vehicle based on how awesome the model S looks I'm sure the model X will be even better.

Really cool product, but still unclear on the investment. Market cap near $3B and sales near $0.2B. Trying to make the math work on how many cars they are going to need to sell to justify increasing the market cap from here forward.

I've always been leery of investing in the auto-industry -- high fixed costs, high R&D, lots of competition makes it hard to pass costs on to consumers to maintain margins. Seems like a difficult way to make a profit no matter how cool your product is.

I can't even remember the last time there was a successful new company in the industry.

What do you think are the odds of Tesla getting Model S or Model X variants into rental and Zipcar fleets? Zipcar in particular is a good match for the company; the kind of people who prefer Zipcars (like me) also prefer electric for the same reason, and since Zipcar is a city-based company where cars are only used for short hops, it would fit electric range requirements even without significant battery life improvements.

It sounds like Tesla is exploring its options beyond direct consumer sales so hopefully they're barking up that tree as well. I'm hopeful for the company and I'll be maintaining and possibly increasing my position.

@DJDynamicNC: Haven't heard anything about a Zipcar-TSLA connection yet. I don't think the Model S will be the right car for it -- too big and expensive -- but maybe in a few years? You're right that it seems like a natural tieup.

@FutureMonkey: Depends how you define "successful" and "new"... Hyundai Motor was established in the mid-'60s, but it started as a division of an already-huge industrial conglomerate. Honda's a decade-plus older, and I think all the other major Japanese makers have pre-war roots... Lamborghini (1963) might have been the last auto startup to attain anything like global status, but it lost money for years and years and has only really started to thrive recently, as a ward of Audi... and it started as a side project of a larger industrial firm as well. And that's a tiny niche maker (as are all of the more recent entries I can think of that might qualify) not a mass-producer. I dunno. Certainly hasn't been one lately. If ever there was a wide-moat industry, automaking is it.

The last one that wasn't a from an established company would be...Ferrari? Honda was in the motorcycle business since shortly after WWII but they didn't make their first car until 1963. (And would Honda count since it was already the world's largest motorcycle manufacturer before getting into the car business?)

About Tesla and ZipCar - won't work until quick chargers become a lot quicker and less expensive. I understand that ZipCar customers would prefer a pure electric over a hybrid, but regardless of the vehicle cost there is no way ZipCar can afford to have a car unrentable for twelve hours or more because it needs to recharge.

The battery pack in the Volt is shaped like a T, it runs down the center tunnel and under the back seat. The battery is exposed to side impact in an area less than one foot square on each side, and it is shielded by multiple layers of steel in the chassis and the door. It took a big hit to cause the crack in the battery that caused the coolant loss and the subsequent fire.

Now look at the battery pack for the Model S. It's a plank that runs almost the full length and width of the passenger cabin.

Tesla is going to have their hands full maintaining the integrity of that battery in a side collision. The proximity to the outside edge and the length of the cell makes it a soft and very big target. To make matters worse, their aluminum chassis is going to offer less crush protection than steel.